A new study reports that CEOs with diverse networks generate an approximately sixteenfold firm market value increase relative to their compensation.
Further, investors already seem to appreciate the value of a CEO with a diverse network. The researchers found that firms whose new CEO had a more diverse network than their predecessor experienced positive and significant short-run stock market reactions. By contrast, firms whose new CEO had a less diverse network than their predecessor experienced significantly lower announcement cumulative abnormal returns.
The researchers are explored casual factors to explain the link between the diversity of the CEO’s network and firm value. Their findings indicated that diversity of a CEO’s network drives higher firm value because network diversity increases (i) innovation and (ii) diversified M&A activity.
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